Managerial Ability and Analyst Participation on Earnings Conference Calls

This paper investigates whether analysts’ assessments of managerial ability affect their incentives to put their names in the queue and ask a question on an earnings conference call. We find that managerial ability is positively associated with the number of questions asked on the earnings conference call and managerial ability is negatively associated with the likelihood that there are zero questions asked on the conference call. These findings suggest that higher ability managers elicit more questions from analysts on earnings conference calls. We further investigate how managerial ability affects the information provided for a set number of questions asked on the conference call by looking at changes in the average analyst forecast error around the conference call. We find that when managers of higher ability are asked more questions, the average forecast error becomes smaller, suggesting that more able managers provide more informative answers to the questions they are asked. This finding also validates analysts’ apparent beliefs that managers of lower ability are less likely to provide an informative answer to questions asked on the conference call. This paper contributes to our understanding of the interactions between analysts and managers that take place during earnings conference calls.